Consumer confidence edged lower in May as rising prices continued to pressure household budgets, while consumers reported cutting back spending and becoming more selective about discretionary purchases, according to The Conference Board.
The Conference Board Consumer Confidence Index dipped 0.7 points to 93.1 in May from an upwardly revised 93.8 in April. In the index, 100 separates positive from negative sentiment.
“Consumer confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified,” said Dana Peterson, chief economist at The Conference Board. “Consumer appraisals of current business conditions and the current labor market were moderately less positive compared to last month. This was somewhat offset by modest improvements in consumers’ expectations for business conditions and the labor market six months from now. Meanwhile, income expectations eased in May, as those anticipating less income rose.”
Consumer plans to buy big-ticket items over the next six months continued to shift from “yes” to “no” in May, although the proportion of consumers planning purchases remained well above those expressing uncertainty or no intent to buy. Homebuying expectations inched higher on a six-month rolling basis, as increased plans to purchase existing homes offset a slight decline in intentions to buy newly built houses.
Spending plans for white goods, home furnishings, and electronics softened or remained flat on a six-month moving average, indicating that consumers continue to approach larger discretionary home purchases cautiously.
In response to specific questions from The Conference Board, two-thirds of consumers reported cutting back on spending overall due to rising prices. Consumers said they planned to economize on clothing and footwear, hobby items and games and toys. Most respondents said they were buying fewer items and delaying more expensive purchases. Consumers who reported postponing purchases indicated they were primarily delaying wanted rather than needed items and generally expected to make those purchases within the next six months.
Although consumers continued to prioritize necessities and affordable indulgences, demand for discretionary services such as travel, personal fitness, amusement parks and gambling increased. Restaurants, bars and takeout, streaming, internet and mobile services, and beauty and personal care remained among the top spending priorities. Travel intentions for the next six months also increased, with consumers continuing to favor domestic destinations over international travel. Planned spending on hotels, motels and airfare rose alongside vacation planning.
The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, slipped 3.2 points to 121.2 as views of both business conditions and job availability weakened modestly.
The Expectations Index, based on consumers’ six-month outlook for income, business, and labor market conditions, rose 1 point to 74.4, reflecting a modest improvement in expectations for the future of business and labor markets. The Conference Board reported that one in five consumers expected their incomes to increase, up from 19.4% in April, while 13.7% anticipated their incomes would decline, up from 12.4%.
Inflation expectations eased slightly in May but remained elevated, while nearly half of consumers expected interest rates to rise over the next 12 months. The Conference Board noted that the ongoing stock market rally, fueled largely by technology stocks, and growing hopes for an end to the conflict in the Middle East likely contributed to increased expectations for higher stock prices over the coming year.
At the same time, consumers expressed somewhat more pessimistic views about both their current and future family financial situations. The share of consumers who said a recession is very or somewhat likely over the next 12 months increased, while the share who said a recession is unlikely declined.
The Conference Board noted that survey respondents’ write-in comments skewed more pessimistic in May. References to prices and oil and gas increased for a second consecutive month, while mentions of war, geopolitics and conflict remained elevated, suggesting ongoing concern about the potential impact of the conflict in the Middle East on inflation and the broader economy.
